As Expected Fed Tapers, Then Provides Forward Guidance on Interest Rates
Rate sheet and market commentary from Liberty SBF for the week of Dec. 20, 2013.
The Federal Reserve did what was expected during its meeting on Wednesday and then took an Ace out of its sleeve to temper market reaction, if it was needed.
First, it began tapering its bond buying program by $10 billion per month, taking the gas off of Qualitative Easing, the stimulus program meant to jolt the economy back to life.
Investors and analysts were ready for it and the market was also prepared for it, reacting accordingly.
“The market was ready for tapering, either in December or January,” Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen was quoted in a story by Bloomberg BusinessWeek.
So far so good. But then the Feds said that the benchmark interest rate was likely to stay low “well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below the committee’s two percent goal,” according to the central bank’s statement.
“The Fed avoided a selloff in the bond market by strengthening forward guidance,” Bloomberg BusinessWeek quoted von Mehren as saying.
Some analysts remain skeptical that a rally in the stock market following the news will last in the longterm. The “relief rally” as one investor called it was a “knee jerk reaction” predicting a snowballing effect with higher rates and wider yield spreads over time.
When asked if Qualitative Easing will end in the middle of next year according to one source, Bernanke said no, that it was closer to the end of the year.
In the meantime, the one-two punch of tapering and forward guidance basically came within expected parameters, at least according to the market’s reaction.
“Mortgage-backed securities held their ground after the Federal Reserve on Wednesday said it would begin trimming its bond-buying stimulus by $10 billion a month beginning in January, suggesting the central bank’s decision was largely in line with expectations,” The Wall Street Journal reported.
CMBS Rate sheet for week of 12/20/2013
Non-Recourse loans for Limited Service Hotels, Office, Industrial, Retail, Multifamily. (As low as $3 Million)
3.75% I 5 YEAR FIXED
5.40% I 10 YEAR FIXED
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